The proverbial wisdom is that it is a character flaw to be unable to view “the forest for the trees.” However, from an investor’s perspective, sometimes granularity can be a virtue. There are any number of data points that reveal that investor sentiment is sub-par, including our own bi-weekly survey. Retail investors continue to pull money out of domestic equity funds and put it into fixed income. Consumer confidence is low. The economy both here and in many developed economies is stagnant.
Investors often make the mistake of evaluating the economy and financial markets in a monolithic fashion. However, it is significantly more complicated than that. Even in a lukewarm economy, there are micro-bull markets taking place right under our nose. One way of observing this reality is to look at the YTD performance of the 100 stocks that currently comprise the PowerShares DWA Technical Leaders Index. PDP is the ticker of the ETF that tracks this index.
Within this index, there are currently 27 stocks up more than 30% YTD (some up as much as 70-80% YTD) and the median YTD performance of stocks in the index is +18%. Through 8/13/12, PDP is up 12.30% YTD, outperforming the S&P 500. In fact, PDP has performed favorably compared to the S&P 500 in this bull market and and since inception.
So, where are some of the micro-bull markets taking place? Consider the business of the Skyworks Solutions (SWKS)-the index constituent that currently has the best YTD performance:
Skyworks Solutions, Inc., together with its subsidiaries, offers analog and mixed signal semiconductors worldwide. The company provides power amplifiers and front-end solutions for cellular handsets from entry level to multimedia platforms, as well as smart phones.
Source: The Street
In full disclosure, not all of the constituents of the PowerShares DWA Technical Leaders Index are performing well. This index is re-constituted quarterly with high relative strength stocks. Sometimes, strong stocks are added to the index and they perform abysmally. Sometimes the index as a whole underperforms. The point of this article is not to say that relative strength is a panacea. That said, there is solid research that shows that relative strength has been an effective way to beat the market over time. Furthermore, the index construction process ensures that the process seeks to identify individual winners regardless of the macro environment.
Image source: Confused Capitalist
See www.powershares.com for more information. Dorsey Wright also currently owns SWKS in our separately managed accounts. Past performance is no guarantee of future returns. A list of all holding for the previous 12 months is available upon request.
[...] was. Probably partly because of a robust backtesting process, our Technical Leaders Index has outperformed the market since inception. I’m sure many other indexes are thoughtfully constructed—but I’m just as sure [...]